Physician Mortgage Loans: Everything You Need To Know

Wendy WilsonJuly 14, 2021

Doctors often struggle to qualify for mortgage loans for several key reasons. First, most physicians have significant student debt from medical school. This negatively impacts their credit history. A medical career also takes time to establish, and it can be challenging to offer proof of employment and income while in residency.

However, lenders understand that fewer doctors default on their loans as compared to the general public. So they create mortgages that are specifically designed to help physicians achieve their dream of owning a home. 

Physician mortgages offer tailored financing and refinancing options for medical professionals. Read on to learn more about physician mortgage loans. 

What is a physician mortgage loan? 

A physician mortgage loan is a mortgage program tailored to medical practitioners. Physician mortgages help doctors buy or refinance a primary residence. However, you cannot use them on a second home or a vacation home. A physician mortgage is different from a conventional mortgage in several ways:

• No private or government mortgage insurance is necessary, with or without a downpayment. Mortgage insurance often adds several hundred dollars to the borrower’s monthly payments. Physicians can redirect these savings towards paying their medical school loans or other obligations. 
• Lenders may exclude medical school debt when calculating a borrower’s debt-to-income ratio (DTI). Lenders generally prefer borrowers with a low DTI because they have a lower risk of defaulting on their loans. Physician mortgage loan calculators often don’t count the medical school debt to make it easier for doctors to qualify for the loan.
• Physicians can easily qualify for a physician mortgage. They do not need to provide the same proof of income or employment verifications that conventional mortgage applications require.

How does a physician mortgage loan work?

Physician mortgage loans have high limits, most starting at $1 million, and can go higher depending on your lender and how much you’re financing. For example, if you are seeking out 100 percent financing, you could be capped off at $1 million. If you are looking for 70 percent financing, the threshold could go upto $2.5 million.

Since student debt is not among the loans counted against you, a significantly broader pool of properties will be available for you to choose from.

However, you have to live in the home you’re buying or refinancing to qualify for a physician mortgage or physician mortgage refinance. You cannot use these types of mortgages to finance an investment property, a second home, or a condo.

Who qualifies for a physician mortgage loan? 

Physician mortgages are open for medical doctors with either an MD (Doctor of Medicine) degree or a DO (Doctor of Osteopathic Medicine) degree.

Some physician loan mortgages are also available to dentists, orthodontists, veterinarians, and podiatrists that hold any of the following degrees:

• DDS (Doctor of Dental Surgery)
• DMD (Doctor of Medicine in Dentistry)
• DVM (Doctor of Veterinary Medicine)
• DPM (Doctor of Podiatric Medicine)

Your loan limits will depend on your level of training and experience. Usually, attending physicians can access higher loan amounts than fellows, residents, and interns.

What are the pros and cons of physician mortgage loans?  

Compared to conventional mortgages with more strict qualification requirements, physician mortgage loans may be desirable to new doctors looking to buy a home. However, the following are some of the key pros and cons to consider. 

Pros: 

• Flexibility: This type of mortgage offers more leeway for doctors to qualify for a mortgage loan. You don’t have to pay for private mortgage insurance or a downpayment to be considered eligible.

• Fewer proofs of income: Most physician mortgage lenders will accept your employment contract as evidence of your work and income. In some cases, medical school transcripts or proof of a medical degree may be requested.

• Unique exceptions for doctors: Many other perks are exclusively available to doctors looking to buy a home. Due to the stiff competition between lenders, physicians can make the most of offers and discounts for a more affordable mortgage.

Cons: 

• Adjustable-rate mortgages (ARM): Physician mortgages are ARMs that may allow you to pay a lower fixed-rate at the beginning of the loan, but could switch to much higher rates in the future. These fluctuating interest rates often catch physicians off guard when planning their finances.

• Comparatively higher interest rates: In the long run, a physician mortgage may have slightly higher interest rates than a conventional mortgage. These costs accumulate over time, despite the attractive rates offered by a physician mortgage loan calculator when you’re shopping for quotes.

• Risk of underwater mortgage: If the value of your property decreases, or if you can’t make payments while you still owe the original loan balance, this type of mortgage may end up costing more than the actual property. This results in an underwater mortgage, especially if you forego the downpayment. 

What is the minimum credit score?  

Physicians need an average credit score of 700 to qualify for most physician mortgage loans. Some lenders will allow for a 620 credit score depending on the borrower’s specific case.  

What is the minimum debt-to-credit ratio? 

Remember that even though medical school debt is not counted for physician mortgage loans, lenders can examine other factors to check if you qualify. The ideal DTI is about 43%, and the lower the number, the better your chances of qualifying. Your lender will check your credit card debt, rent payments, car loans, child-related expenses such as alimony, and all other costs to determine your DTI.

To calculate your DTI, the basic formula is:

(total monthly debt payments + total monthly housing)/monthly gross salary

Final thoughts

Buying a home is a considerable investment for everyone, including physicians. However, medical practitioners have a unique set of advantages and challenges when looking for a mortgage. Always weigh the pros and cons of physician mortgage loans before you take the plunge into homeownership.